Alaska mid-year forecast: economy continues to rebound.

• Author: Bohi, Heidi
• Position: ECONOMY

One thing is certain: in varying degrees, directly or indirectly, the recession has impacted almost every industry in the country. And while Alaska has always been insulated from what goes on in the rest of the world, in many sectors, this time there is a crack in its glass bubble. As the state looks back on the first hall of 2010 and ahead to the remaining six months, even the number of jobs in Alaska, which has not shown a decline in more than 21 years, dropped--not by much, but a downward movement nonetheless. The environmental sector, no stranger to contesting almost every move from the pro-development front, is holding its breath as elected officials desperately reach for that brass ring again while also slashing funding sources. New mining projects have been put on hold and may not happen at all. Although oil and gas remains unaffected by the recession, at the same time, everyone in the industry will tell you that more than any other time in history, the state's largest industry faces a bleak future.

We picked top leaders in their respective industries and asked them to help us determine where the pencil mark lands for Alaska six months into the year, and what changes--for better or worse--we can expect to see as we head into 2011.

We asked three questions:

* How are things looking in your industry for the latter half of 2010?

* Has the worldwide recession affected your industry?

* What trends do you expect to see in your industry over the next two years?

Here are their answers.

CONSTRUCTION (COMMERCIAL

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By John MacKinnon

Executive Director Associated General Contractors of Alaska

Things look every bit as good or better as our forecast indicated at the beginning of the year. This will be a very good year for civil work, with plenty of projects under construction or out to bid. Building construction may pick up in the second hall of the year as a result of the 2011 capital budget. For example, the crime lab and the governor's deferred maintenance package have immediate effective dates and can get under way as soon as signed. The $397 million bond package needs voter approval in November, and most of the projects in it will need a year to be ready to go to bid, leading into a good 2012.

The recession has been a significant factor in the reduction in private commercial buildings, though it cannot take all the blame. In Alaska, after 20 years of uninterrupted growth, there was bound to be a need for demand to catch up with supply because we overbuilt and now it has been exacerbated by the recession.

On the civil side, I expect the next two years to resemble 2010: good for dirt and paving contractors as the industry wraps up the end of the Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users (SAFETEA-LU), the stimulus and the 2008 State transportation bond projects. Reauthorization of the SAFETEA-LU highway program may present a whole new picture.

Building construction should improve somewhat with the continuation of the governor's deferred maintenance package--$100 million a year for five years--as he proposed last November, the passage of the $397 million general obligation bond package in November, and building projects that were part of the federal stimulus that are just starting to hit the street. We do need to see an increase in private commercial investment in part due to the slow recovery nationwide. There's no indication from Washington that defense spending in Alaska will subside anytime soon.

Right now, oil and gas spending is anyone's guess. I'm concerned that with the recent events in the Gulf Coast there will be a regulatory reaction in Washington that will not be good for Alaska.

CONSTRUCTION (MILITARY)

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By Chris Tew

Chief of Contracting U.S. Army Corps of Engineers, Alaska District

The U.S. Army Corps of Engineers, Alaska District, continues to manage one of the largest military construction programs in the nation, while helping to provide economic stability on the Last Frontier.

For fiscal year 2010, the district's military program consists of 17 projects valued at $333.5 million. The vast majority of these projects were awarded by the end of Match to capitalize on the optimal construction season in Alaska. The district still plans to award an additional $30 million in military construction contracts by the end of September.

This year's Army program features 11 projects worth $231.2 million, including five projects funded at $59.6 million on Fort Richardson, and six projects at $171.6 million on Fort Wainwright.

The Air Force program shows construction of six projects totaling $102.3 million in fiscal year 2010. Elmendorf Air Force Base has two projects funded at $37.6 million, Eielson Air Force Base has three projects at $40.4 million and Clear Air Force Station has one project at $24.3 million.

Meanwhile, under the American Reinvestment and Recovery Act (ARRA) of 2009, the Alaska District awarded contracts for an additional 47 military construction projects at $20.3 million. It was the first in the Corps to successfully obligate all of its ARRA funding by Match 2010.

By spending these dollars as quickly as possible, the district helped put hundreds of local contractors to work and is contributing to the nation's economic recovery. In some cases, these new jobs will endure for the next two years.

Turning to fiscal year 2011, the Alaska District's military construction program estimates 12 projects funded at 391.7 million. For the Army, the Corps anticipates nine projects at $348.4 million. For the Air Force, the outlook calls for three projects at $43.3 million.

Since federal spending has remained high in an effort to both stabilize and stimulate the economy, the U.S. Army Corps of Engineers, Alaska District, has maintained a robust workload for its military construction program in spite of the recession.

Most notably, the economic downturn has sparked greater interest in business opportunities with the Corps. Given the general contraction of construction spending in other sectors of the economy, firms that typically did not pursue work with the district are now bidding on these projects. The shift has increased competition for Corps projects, leading to better pricing and increased value for its clients.

The near-term forecast for the U.S. Army Corps of Engineers' military construction program in Alaska is very positive. For the next two years, Army and Air Force projects are expected to have an aggregate value of about $850 million with the workload in fiscal year 2012 registering slightly larger than the fiscal year 2011.

ENVIRONMENTAL

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By Jim Ayers

Vice President Oceana Inc.

Our business is conservation of the world's oceans: maintaining the health and biodiversity of marine ecosystems and sustaining the resource while maintaining coastal communities' way of life. The health of the ocean environment and marine ecosystems--which is dismal--affects the long-term health of the economy. To this end, our work continues to be a matter of stewardship in three areas: overfishing, carbon emissions and pollution.

Overfishing is devastating our oceans, which could be rectified by establishing an ecological-sustained-yield principle rather than the current maximum-sustained-yield principle.

Carbon emissions from humans are causing climate change demonstrated by the melting polar ice and glaciers. Perhaps worse, carbon is causing increased acidity of our oceans, which threatens many species, including fish, and particularly shellfish. The ocean supports the life of about 50 percent of all species on earth and helps sustain that life, providing 20 percent of the animal protein and 5 percent of the total protein in the human diet. One of every six jobs in the United States is marine-related. Climate change and ocean acidification can be remedied by reducing carbon emissions through alternative energy, and home and business weatherization, along with a commitment to using mass transportation. That trend has begun.

Pollution is destroying our oceans, killing marine life and ultimately threatening the planet's well being. Oil development, spills and ocean debris are killing marine life and threatening the health of many species. This can be rectified by moving to alternative forms of energy and reducing, reusing and replacing plastic containers. Although this trend has started, the change in behaviors is not happening quickly enough.

A more complex and challenging problem is the amount of chemical compositions being poured into the world's oceans, which is evidenced by mercury being round in species such as tuna and swordfish. Resulting health effects include damage to the central nervous system, heart and immune systems, and the developing brains of young and unborn children. This is being addressed by sanctioning and controlling known chemical producers and regulating polluters such as chlorine plants and coal-fired generators, the latter being a major contributor to carbon problems.

The world recession is affecting the environment in two ways. The recession has caused a relaxing of stewardship values and the mantra "drill baby drill" without forethought or regulation has become pervasive in consideration of development projects. Many have used the economic recession as rationale to take big risks irrespective of environmental consequences. We need look only to today's headlines of devastating effects like the Gulf BP oil spill.

The recession has also caused a pullback from funding sources and philanthropists who provide the major source of revenue for conservation. Over the next two years there is likely to be continued reduction in revenue as most are managed funds that contribute on a five-year rolling average of earnings, which are down.

The trends in America and parts of Europe and Asia of privatizing profit, but socializing risks and loss will continue making the environmental...